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Lets Get Serious: Another Look

Editor’s Note: John Byrnes Lets Get Serious Column that first appeared on The Wisconsin Technology Network on July 17, 2003 stimulated a great deal of mail with healthy debate and discussion among many members of our audience. Here is another look at the same topic that should help to clarify Mr. Byrnes position. John Byrnes can be reached at john@wistechnology.com.

“I am not an enemy of manufacturing”
Contrary to impressions gleaned from my editorial, I am not an enemy of manufacturing. At Mason Wells we regularly invest in basic manufacturing businesses in Wisconsin and other states with the intent of doing just what many of you have suggested--moving those manufacturing companies into the high-tech end of their industry. We have been reasonably successful over the years in this effort. Nonetheless, I stick to my assertion that manufacturing jobs are on the decline and will continue no matter what we try to do to prevent it.

The reason we cannot stop the decline in such jobs is that the population of manufacturing workers is being eroded by three forces working concurrently to reduce the number of available positions in the manufacturing sector:

First, foreign competition is taking over the manufacturing of low-tech products that can be made by unskilled workers, particularly those that are made in facilities with a big environmental profile that makes it expensive to operate in Wisconsin, and the US generally.

Second, many well-managed Wisconsin manufacturing companies are shifting their business focus from being a low-cost producer to becoming a customer-focused marketing and distribution organizations. This is a wise and necessary change that causes such companies to make increased investments in new products that are purchased on the outside or made with high-tech capital equipment that displaces unskilled and semi-skilled with "smart machines" and "automated material handling systems".
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Third, the workers themselves are vanishing. The skilled factory workers we remember from the “good old days” are retiring and not being replaced by younger apprentices who have learned the skills of their fathers. In fact, the current generations of students are electing educational programs that train them for other fields of work, such as healthcare, information processing and scientific research—these are “new economy” jobs. Additionally, these students are voting with their feet when they graduate by leaving Wisconsin for greater opportunities in states where the business, governmental and community leaders get it.

Furthermore, I question the assertion that manufacturing growth spawns more economic activity and higher paying jobs than any other sector. While that principle was no doubt true 20 years ago, it no longer is. To be correct, it presupposes that the typical manufacturing firm purchases most of the goods and services it needs in the local economy. This is flat out wrong.

I would be surprised if more than 18-20% of Harley Davidson's revenue is spent in Wisconsin, making it far less important to the local economy than the combined purchases of goods and services by the major hospitals in Milwaukee County. While it is no doubt true that “most” of the local expenditures of healthcare organizations are paid for by local consumers, I think that careful analysis of the data would show that Wisconsin’s healthcare organizations currently pay local professionals, i.e. doctors and nurses, more each year to provide services for out-of-state patients, than Harley’s combined local expenditures. And guess what, the growth in these services to out-of-state customers is also rising much faster than Harley’s.

Manufacturing will always have a place in the Wisconsin economy, just as agriculture (once Wisconsin’s primary source of economic activity) still does today, but the number of jobs in basic manufacturing will continue to decline as they have in agriculture. The wages of the Wisconsin manufacturing worker will, and should, continue to rise while the population of workers declines. In manufacturing we will continue to create wealth, but fewer jobs.

The challenge of creating more jobs will fall on the shoulders of those attempting to create new businesses in new industries that are expanding and need the recently educated young men and women who seek to make a contribution to our economy and society in entirely new ways. Some of these businesses will compete in new, high-tech manufacturing. Many others will compete in knowledge intensive industries providing services in healthcare, information management and advanced research.

I appreciate the notes, thoughtful comments and concerns of WTN readers. I even wish I could agree with many of you because it would make our future easier and more secure. Unfortunately, I am convinced that trying to retain manufacturing jobs in the 21st Century is a losing cause.

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John Byrnes is Executive Managing Director of Mason Wells, a leading Midwest private equity and venture capital firm headquartered in Milwaukee, Wisconsin. John is a regular columnist for the Wisconsin Technology Network and can be reached at john@wistechnology.com.
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Let's Get Serious, by John Byrnes
Wisconsin Manufacturing - demise or survival?, by Frank Borg
Let's Get About Manufacturing!, by Mike Klonsinski
John…Let’s Get Serious - “Manufacturing is a critical part of the Wisconsin economy”, by John Stilp

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